According to the relationship represented by the consumption function, governments can indirectly decrease consumption spending by
A)increasing taxes.
B)decreasing transfers.
C)decreasing taxes.
D)decreasing government spending.

Question

Quizplus · Accepted Answer

According to the consumption function, the level of consumption spending is directly related to disposable income (income after taxes and transfers). Therefore, if the government increases taxes, disposable income will decrease, which will lead to a decrease in consumption spending.

According to the Relationship Represented by the Consumption Function, Governments